Financial services companies, such as banks, credit card companies, investment companies, and the like, handle numerous types of financial transactions on a daily basis. In a single day, for example, a bank may handle deposits, withdrawals, debit card payments, credit card payments, funds transfers, bill payments and many other types of financial transactions. These transactions may take place through various forms, including checks, wire transfers, electronic funds transfers, automated teller machines (ATM), and the like, and they may involve sums ranging anywhere from a few dollars to several hundred thousands of dollars and more. Furthermore, they may originate from virtually any country and any location by virtue of an extensive financial network that typically includes the Internet. Such transactions make it possible and convenient for consumers and businesses alike to exchange goods, services, and to conduct various commercial activities.
Most financial transactions are legitimate transactions carried out for genuine business or personal reasons. However, a small (but growing) number of transactions are conducted with the intent to defraud the financial services companies that handle the transactions. These fraudulent transactions work by taking advantage of the delay between the time a deposit is made and the time the funds are actually received in an account, which may take several days. Funds that are deposited via electronic funds transfers, for example, must first clear an automated clearing house (ACH) before they are actually received in the account, which may take up to two days. Checks may similarly take several days before the underlying funds are actually available to the financial services company.
Despite the long clearing time, certain customer-oriented financial services companies allow their customers to access the funds immediately rather than make the customers wait for the funds to clear. While this courtesy is convenient from the customers' perspective, for the financial services companies, it is equivalent to extending an unsecured loan for several days in the amount that was transferred. Unfortunately, unscrupulous parties may try to take advantage of the unsecured loan to defraud the financial services companies. These fraudulent activities impose an enormous cost on the financial services companies that, unfortunately, is ultimately passed on to consumers.
In a typical fraudulent transaction, an unknown party opens a new account with the financial services company and makes several small, but legitimate deposits, all of which clear in due course. Shortly thereafter, the party makes a much larger, but fraudulent deposit into the account, and begins almost immediately to withdraw all or a portion of the deposited amount. The unwary financial services company, not suspecting that a fraudulent transaction is taking place, allows the party to withdraw the funds before the deposit has cleared. Several days later when the financial services company realizes that a fraud has been perpetrated (because the deposit does not clear), the perpetrator and stolen funds are nowhere to be found.
One way to prevent the above fraudulent activity is to employ a fraud prevention team to scrutinize each transaction. Unfortunately, there are far too many transactions on a given day for any fraud prevention team to effectively monitor. Thus, most financial services companies address the above fraudulent activity by automatically denying customers access to all incoming funds until after the deposits have cleared. However, such a solution also penalizes legitimate customers who have no connection to any fraudulent activity. The vast majority of these customers are loyal, long-time customers whose transactions are sufficiently numerous and/or have occurred over a sufficiently long period of time as to pose little or no risk to the financial services company. Indiscriminately blocking these legitimate customers unfairly and adversely impacts their business and/or personal activities. Other solutions that purportedly prevent fraudulent activity similarly fail to take into account mitigating factors with respect to legitimate customers.
Accordingly, what is needed is a more effective way for financial services companies to prevent fraudulent transactions. More specifically, what is needed is a way for financial services companies to automatically identify and manage potentially fraudulent transactions without adversely impacting legitimate customers.